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FAQ:  Contract Assignment Requirements

 

As of May 16, 2016, new provincial rules relating to the assignment of real estate contracts are in force. The provincial government has amended the Real Estate Services Regulation (the “Regulation”), and these new requirements will apply in all transactions where a licensee is acting for the seller and/or the prospective buyer of real estate.

To find out more about contract assignments and the effects of the new regulations, check out the questions and answers in the FAQ categories below:

 


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About Contract Assignments

Show/Hide AnswerWhat is a contract assignment?

A contract assignment occurs when a buyer transfers the contract to buy property to someone else before the completion date. The buyer can transfer the contract for any price, even for a higher price than they paid for the property.

Show/Hide AnswerAre contract assignments legal?

Yes. Real estate contracts are assignable under the law unless the contract expressly forbids it. Section 36 of the Law and Equity Act provides that the seller’s consent to the assignment is not required, provided that notice in writing of the assignment is given to the seller.

Show/Hide AnswerWhy has the government issued new requirements relating to contract assignments?

The new regulations which came into force on May 16 are designed to prevent situations in which a buyer purchases a property, only to reassign the contract at a higher price before the closing date, without the seller’s knowledge. On March 18, 2016, the Premier announced that the Province would put new rules in place to require the seller’s consent for any contract assignment and to mandate that any profit from an assignment be returned to the homeowner.

 

The new regulations require that standards terms be included by default in any offer to purchase real estate, unless the client instructs otherwise. These requirements are intended to protect sellers’ interests and deter potential licensee misconduct in relation to contract assignments.

 

Show/Hide AnswerWhat are the new provincial requirements for licensees relating to assignments?

The amendments to the Regulation provide that a licensee preparing a proposed contract for the purchase and sale of real estate (an “offer”) must include the following terms (the “Standard Assignment Terms”) unless otherwise instructed in writing by the person to whom they are providing trading services:

  1. this contract must not be assigned without the written consent of the seller; and
  2. the seller is entitled to any profit resulting from an assignment of the contract by the buyer or any subsequent assignee.

 

The British Columbia Real Estate Association has developed a revised version of the standard Contract of Purchase of Sale that includes the Standard Assignment Terms. The new Contract of Purchase and Sale is available for licensees on WEBForms.

 

The amendments further provide that licensees must take certain steps if they are involved in a potential real estate transaction where an offer to be presented to the seller does not include the Standard Assignment Terms. See the questions below for details on those steps.

 

Show/Hide AnswerWhat constitutes “profit” for the purpose of the Regulation?

The Regulation does not address the meaning of “profit.” If you are acting for a buyer or seller who has any questions or concerns about the “profit” arising from an assignment, you should advise them to seek independent legal advice before consenting to the assignment. The regulation does not address how or when a “profit” is to be paid to the seller, so these issues may be resolved by negotiation between the buyer and seller.

 

 

Guidance for Licensees Acting for Buyers

Show/Hide AnswerI am a licensee acting for a buyer and the seller is represented by a licensee. What are my obligations?

If you are aware that an offer to be presented to the seller:

  • does not include one or both of the Standard Assignment Terms;
  • alters either of the Standard Assignment Terms;
  • or creates a new assignment term that is in any way different from the Standard Assignment Terms;

you must notify the seller, through their licensee.

You must use the Council’s Notice to Seller Regarding Assignment Terms form, available on the Council’s Forms page under the subheading “Disclosure Forms”. Provide the form to the seller’s licensee at the same time the offer is presented.

 

Show/Hide AnswerI am a licensee acting for a buyer and the seller is unrepresented. What are my obligations?

If you are aware that an offer to be presented to the unrepresented seller:

  • does not include one or both of the Standard Assignment Terms;
  • alters either of the Standard Assignment Terms;
  • or creates a new assignment term that is in any way different from the Standard Assignment Terms;

you must notify the seller, using the Notice to Seller Regarding Assignment Terms form. Provide the form to the seller at the same time the offer is presented.

 

Show/Hide AnswerI am a licensee acting on my own behalf to acquire real estate (directly or indirectly). What are my obligations?

If you are aware that an offer to be presented to the seller:

  • does not include one or both of the Standard Assignment Terms;
  • alters either of the Standard Assignment Terms;
  • or creates a new assignment term that is in any way different from the Standard Assignment Terms;

you must notify the seller’s licensee (or the seller, if the seller is unrepresented) using the Notice to Seller Regarding Assignment Terms at the same time the offer is presented. Provide the form to the seller’s licensee (or to the seller, if they are unrepresented) at the same time the offer is presented.

 

These notice obligations are in addition to your responsibility to disclose your interest in trade to the seller.

 

Show/Hide AnswerI am preparing an offer for a buyer who may wish to add another buyer (e.g. their spouse) to the contract prior to closing, or to have title to the property transferred to the name of another party (e.g. a numbered company) on closing. What should I do?

You should advise your client to obtain independent legal advice on how their offer may be structured to achieve their goal. This is a legal question that should be answered by a lawyer.

If the buyer decides they wish to retain a right to assign the contract without the consent of the seller, and instructs you to strike or alter a Standard Assignment Term in the offer you are preparing on their behalf, or to add an additional term that would alter the effect of a Standard Assignment Term, then you must provide the Notice to Seller Regarding Assignment Terms form to the seller or seller’s licensee at the same time the offer is presented.

If the buyer asks you to add a term to an offer, and you are not sure whether the term will alter the effect of a Standard Assignment Term, the safest course will always be to provide the Notice to Seller Regarding Assignment Terms form to the seller or seller’s licensee at the same time the offer is presented.

 

Show/Hide AnswerI am a licensee acting for a buyer under a contract of purchase and sale that expressly permits assignments. If the buyer wishes to “sell” their interest in the contract to another party (i.e. an assignee), will my buyer client be a “seller” entitled to the protections of the regulation?

No. The new requirements only apply to proposed contracts for the purchase and sale of real estate. They do not apply to proposed assignment agreements. The new requirements are intended to protect sellers of real estate, not sellers of real estate contracts.

 

Show/Hide AnswerI am acting for a buyer who is contractually obligated to pay the seller the “profit” of an assignment. How and when must my client pay the seller that profit?

If you are acting for a buyer/assignor or a subsequent buyer/assignee of a contract that provides that “the vendor is entitled to any profit resulting from an assignment of the contract by the purchaser or any subsequent assignee”, and there is any question as to whether the assignment is for a “profit”, you should advise your client to seek independent legal advice on:

  • Whether the assignment will result in a “profit”; and
  • How and when that profit should be paid to the seller.

 

Show/Hide AnswerI am acting for a buyer who has entered into a contract of purchase and sale that contains both of the Standard Assignment Terms. The buyer wishes to add their spouse as an additional buyer under the contract by way of an amendment. Will I be required to provide a Notice to Seller Regarding Assignment Terms form to the seller?

No. The Regulation imposes requirements on licensees who are dealing with assignment terms in “proposed contracts of purchase and sale” (i.e. offers). Once an offer is accepted, and a contract of purchase and sale is entered into, the disclosure requirements in section 8.2 of the Regulation will not be triggered by a subsequent amendment of the contract.

However, you should alert your buyer client that there are risks to consider when amending the terms of an accepted contract. (For more on those risks, see the The Practice of Adding New Terms on a Subject Removal Addendum in the Professional Standards Manual.) You should advise your client to obtain independent legal advice so they may understand their options in this regard.

 

Guidance for Licensees Acting for Sellers

Show/Hide AnswerI am a licensee acting for a seller and the buyer is unrepresented. What are my obligations?

If an unrepresented buyer presents an offer that:

  • does not include one or both of the Standard Assignment Terms;
  • alters either of the Standard Assignment Terms;
  • or creates a new assignment term that is in any way different from the Standard Assignment Terms;

neither you nor the unrepresented buyer will be required to provide the seller with a Notice to Seller Regarding Assignment Terms form.

 

However, you must inform the seller:

  • that the offer does not include or alters a Standard Assignment Term,
  • whether the proposed contract may be assigned, and
  • if the proposed contract may be assigned,
    • about any conditions in the contract on the right of assignment of the contract, and
    • about the seller’s entitlement under the contract to any profit resulting from an assignment of the contract, if applicable.

 

If you are acting for a seller and an unrepresented buyer asks you to write an offer for them (without you providing them agency), you must advise the unrepresented buyer that, in accordance with the regulation, you cannot prepare an offer that alters or strikes out a Standard Assignment Term unless you are instructed to do so by the seller.

 

The regulation would not prevent the unrepresented buyer from taking the offer written by you that includes the Standard Assignment Terms, personally striking out or varying one or both of the terms, and then handing the offer back to you for presentation to the seller. You would then proceed to have the required discussion with the seller about the offer as set out above.

Show/Hide AnswerI am a licensee acting for a seller and the buyer has a licensee. What are my obligations?

If an offer from a represented buyer to be presented to the seller:

  • does not include one or both of the Standard Assignment Terms;
  • alters either of the Standard Assignment Terms;
  • or creates a new assignment term that is in any way different from the Standard Assignment Terms;

the buyer’s licensee must notify the seller of that fact using the Notice to Seller Regarding Assignment Terms form. The buyer’s licensee is required to provide the form to you at the same time the offer is presented.

 

You are then required to take the following steps:

  • provide the form to the seller at the same time you present the offer;
  • inform the seller that:
    • the offer does not include or alters a Standard Assignment Term,
    • whether the proposed contract may be assigned, and
    • if the proposed contract may be assigned,
      • about any conditions in the contract on the right of assignment of the contract, and
      • about the seller’s entitlement under the contract to any profit resulting from an assignment of the contract, if applicable.

 

Show/Hide AnswerI am a licensee acting for a seller. I just received an offer from a buyer’s licensee that alters or strikes out a Standard Assignment term. The buyer’s licensee has not provided me with a Notice Regarding Assignment Terms form. What do I do?

First, ask the buyer’s licensee to provide the form. If they refuse to do so, you should report the matter to your managing broker (who should ensure that it is brought to the Council’s attention). Advise the seller:

  • that the offer does not include or alters a Standard Assignment Term;
  • that the buyer’s licensee has failed to provide a Notice Regarding Assignment Terms form in accordance with the regulation;
  • whether the proposed contract may be assigned, and
  • if the proposed contract may be assigned,
  • about any conditions in the contract on the right of assignment of the contract, and
  • about the seller’s entitlement under the contract to any profit resulting from an assignment of the contract, if applicable.

The seller can then instruct you on how they wish to proceed.

 

 

Show/Hide AnswerI am acting for a seller who is contractually entitled to “any profit resulting from an assignment.” How and when will my client receive that “profit”?

If you are acting for a seller who has entered into a contract of purchase and sale that contains both of the Standard Assignment Terms, and the buyer proposes an assignment of the contract, you should advise the seller that before consenting to the assignment, they should clearly understand:

  • the amount that the buyer is suggesting is “profit”,
  • the basis for the buyer’s calculation of that amount; and
  • how and when that amount will be paid to the seller.

If the seller has any questions or concerns, you should advise them to seek independent legal advice before they consent to the assignment. The regulation does not address how or when a “profit” is to be paid to the seller, so these issues may be resolved by negotiation between the buyer and seller.

 

Show/Hide AnswerWhat remedies are available to the seller if they do not receive the “profit” from an assignment?

The regulation does not address how a seller is to enforce a contractual right to receive “profit” resulting from an assignment of the contract.

If you are acting for a seller who has questions about the remedies available to them if the buyer refuses to pay them the “profit” component of an assignment, you should advise them to seek independent legal advice.

 

 

Using the New Notice to Seller Regarding Assignment Terms form

Show/Hide AnswerAre sellers required to sign the Notice Regarding Assignment Terms form?

No. Sellers are not required by the regulation to sign the Notice Regarding Assignment Terms form. However, licensees must use their best efforts to obtain the seller’s signature as confirmation that the seller has received and read the form. This provides proof that the licensee has complied with the regulation.

 

Show/Hide AnswerWho is responsible for seeking the seller’s signature on Part B of the Notice Regarding Assignment Terms form?

Where a buyer’s licensee is providing the form directly to an unrepresented seller, the buyer’s licensee must use best efforts to obtain the seller’s signature on the form.
Where a seller’s licensee has received the form on behalf of the seller, and is providing the form to the seller, the seller’s licensee must use best efforts to obtain the seller’s signature on the form.

 

Show/Hide AnswerOnce the form has been presented to the seller, who else receives a copy?

If the seller is working with a licensee: Once the form has been provided to the seller by the seller’s licensee, the seller’s licensee must provide a copy (preferably one that has been signed by the seller) of the form to the buyer’s licensee, and the managing broker for the seller’s licensee.

 

If the seller is unrepresented: Once the form has been provided to the seller by the buyer’s licensee, the buyer’s licensee must provide a copy of the form (preferably one that has been signed by the seller) to the managing broker of the buyer’s licensee.

Show/Hide AnswerWhat are the requirements for brokerages?

The Council intends to amend the Rules to require licensees to submit to their managing broker copies of each Notice to Seller Regarding Assignment Terms form provided to a seller, and to require brokerages to retain copies of such notices.

 

Pending this amendment to the Rules, the Council advises licensees to immediately begin providing their managing brokers with a copy of each notice provided to a seller, and brokerages to immediately begin retaining copies of such notices. It is in the best interest of licensees and brokerages to do so, as keeping records of such notices will assist licensees and brokerages in proving their compliance with the new requirements regarding Standard Assignment Terms should any questions arise in that regard.

Show/Hide AnswerWhich brokerage should complete the “Brokerage Use Only” section of the Notice Regarding Assignment Terms form?

Any managing broker, or their designate, whose licensees have been involved in an offer in which the form has been required, must fill out the “Brokerage Use Only” section and retain a copy of the form in the brokerage’s records. Where the offer has been accepted, the form should be kept in the related deal file. Forms involved in offers that were not accepted should be retained in a general file.

 

 

Guidance in Other Situations

Show/Hide AnswerHow will the new requirements affect transactions now in progress?

The new requirements will not apply to transactions where a Contract of Purchase of Sale has been fully executed by all parties prior to May 16, 2016 (the date the Regulations come into force).

An offer that has been presented but not accepted in writing by all parties prior to May 16, 2016 will need to be brought into compliance with the new requirements.

Show/Hide AnswerDo the new requirements apply to sales by buyers after closing?

The new requirements will not impact a buyer who takes title to a property and then re-lists it or transfers title for a higher price, as that scenario does not involve the assignment of a Contract of Purchase and Sale.

Show/Hide AnswerAre there exceptions to the new requirements?

The new requirements apply in all transactions involving a licensee, except where the contract is for the sale of a development unit by a developer, as those terms are defined in section 1 of the Real Estate Development Marketing Act.

Show/Hide AnswerHow can I find out more about the new requirements?

The Council is currently finalizing educational materials for managing brokers and licensees to help them understand and comply with the new requirements. More information will be added to this webpage in the days ahead, and announcements will be distributed to all licensees about new informational tools and reporting requirements to ensure that licensees are complying with the regulations.